Optimizing Your Business Exit- Part I

More than once I’ve counselled professionals and business owners who have come to an awkward realization. They no longer want to work the business, they desperately want to retire, but they are stuck because the business is not sale-ready, and may never be. And yet, they’re done, cooked, fried, toast. They want out so badly they can taste it, but it’s not going to happen.

If that’s your business, and you’ve counted on it as your retirement nest-egg, that’s an ugly place to be.

Over the next few weeks we’ll cover some of the key issues of optimizing your business or profession for sale, as well as other ways of extracting value when you do “shut it down”.

Let’s quickly review the two major kinds of business. The one that’s “just you”, and the one that’s “you plus”. The latter are easier to sell when you want to retire, the former not so much. But even in the former case, it’s not impossible to extract value.

“Just you” businesses tend to be personal services such as medicine, law, studio photography, and wedding cakes. Clients come to you because of your personal expertise and reputation. Selling such a business is not easy, but can be done with some forethought and planning. What is often left on the table, though, are intangibles such as intellectual property – designs, inventions, writings, methods, etc. These are highly monetizable if done right.

“You plus” businesses are those who have more personnel than just the owner (and perhaps owner’s spouse). It could be a small trucking business, or it could be Microsoft. Roughly speaking, if a business can continue to run while you’re on vacation for two weeks, or laid up with a broken hip, it’s more likely a “you plus” business. These are easier to sell, if packaged right.

Over the next several weeks we’ll look at the whole concept of monetizing your business when you retire, but the first and most important question is “When should I start thinking about this?” Well, as the old Chinese proverb goes, “The best time to plant a tree was twenty-five years ago, and the next best time is today.”

In the same fashion, the best time to start planning your business or its assets is not just before you decide to sell your business, but before you start your business.

Now, to be fair, most of us when laying the groundwork for our business or profession have no clear idea of how it will end. Some young lawyers happen to be in the right place at the right time and get appointed to the bench, spending the next twenty five years dispensing justice and retiring with a very attractive pension and benefit package. An opportunity came along, a great one, and you grabbed it. Similarly an entrepreneur, almost by definition, grows and prospers by identifying and exploiting opportunities which probably didn’t exist before they got into the business.

So, no, you mostly can’t have a thirty year blueprint. What you can do, though, is think about who you are, who your best customers or clients will be, and how you prefer to work. Are you a hands-on craftperson, or would you prefer to have somebody else make your widgets while you network and wheel and deal? Are you a cautious penny-pincher, or a bit of a crazy “damn the torpedoes” chance taker? Questions of this nature, at and before launching, begin to tell you a lot about what you may have for sale three decades later.

Thinking in advance about the kind of person you are, what and how you prefer to do things, what you love to do, how (and even if) you like to interact with people, whether you enjoy leadership or supervision (two quite different things), and, of course, your attitude about trade-offs between money and family time — all these things will inform what kind of career you want to shape and allow you to proceed more purposefully and more efficiently. And consequently, more profitably, and consequent to that, the more attractive your business will be to a purchaser.

Stay tune as we consider some of the issues, and some of the hidden opportunities, when you eventually sell the business.